The Chinese economy is slowing down as part of the global economic slowdown now engulfing the capitalist world. China is also suffering from internal capitalist contradictions of its own.

The leadership of the Communist Party of China is now confronted with a decision about how to deal with this slowdown. And this decision comes at the very moment that the “reform and open up” faction has just carried out a political purge of the forces in the CPC headed by Bo Xilai. Bo’s grouping had wanted to strengthen the state-owned, planning side of the economy as opposed to those who wanted to deepen reliance on the capitalist market.

The issues in the purge of Bo were stated bluntly by Premier Wen Jiabao. In a March 14 news conference, Wen blamed Bo for the “incident” in which Wang Lijun, former police chief of Chongqing, went to the U.S. Consulate in Chengdu where he is said to have made charges against Bo Xilai and showed documents to U.S. officials.

Wen made clear that he linked what he called “the Wang Lijun incident” to a broader agenda. Answering a question about Chongqing and Wang’s flight to the consulate, Wen said, “We’ve taken the major decision of conducting reform and opening up in China, a decision that’s crucial for China’s future and destiny.” (Washington Post, April 26)

But Wen and the “reform and open up” current of which he is the leader are now faced with a stark contradiction. Can a deeper reliance on the capitalist market and the further intervention of imperialist corporations reverse the current slowdown in China? Or will the leadership reverse its current course and strengthen planned state intervention by the state banks and the state-owned enterprises to counteract the effects of capitalism in China?

Global capitalist economic slowdown spreading

Right now the economy of India is slowing down, as is the Brazilian economy. This is the result of the slow growth of the U.S. and Japanese economies and the outright downturn in Europe. Given its partial integration with world capitalism, China cannot but be seriously affected by this development.

This sharply poses the question of what measures to take to protect the Chinese economy and the Chinese workers and peasants from the downturn. Will the leadership rely on the capitalist market, or will it pull back and strengthen state intervention and planning, plus give aid to the masses who will be affected by this slowdown, as the CPC did during the 2008-2009 crisis?

Of course, that crisis was far more acute and severe. Some 20 million manufacturing workers in the eastern provinces of Guangdong, Zhejiang and other export-oriented areas lost their jobs. The measures taken to counteract this crisis, brought on by world capitalism, were massive and effective in creating an equal number of jobs and raising the income of the population during the crisis. (See Part 2 of this series, “Capitalist crisis versus planning,” March 27.)

The New York Times of May 13 described the present slowdown: “China’s General Administration of Customs announced on Thursday that growth in imports had come to a virtual halt in April compared with a year earlier. The development was unexpected in an economy that depends heavily on imported raw materials as well as on imported computer chips, sophisticated factory tools and other high-end imports for its industrialization.

“China’s exports also grew half as fast as expected in April.

“Figures released on Friday by the National Bureau of Statistics in Beijing showed that industrial production, fixed-asset investment and retail sales in April all increased somewhat more slowly than expected. Separate figures from the central bank also showed weak growth in bank lending.

“China’s central bank has been working behind the scenes to make it easier for banks to lend, but so far that appears to be having little impact. New loans fell to 681 billion yuan in April, down from 1,010 billion yuan in March and their lowest level so far this year.”

He Weisheng, a China strategist at Citibank, said this reflected weak demand for loans rather than insufficient capital at banks. “The banks have the money to lend; the problem is that firms don’t see profitable opportunities to invest, so they don’t want to borrow.” (Wall Street Journal, May 11)

The People’s Bank of China — the central bank — is reacting to the crisis with bourgeois monetary methods similar to those of the Federal Reserve Board in the U.S. It is allowing the banks to have more money to loan to private capitalists. But they see no profit in any further investment and thus don’t want to borrow.

‘Reformers’ in charge after defeating Bo

Among the chief economic officials in China are Premier Wen Jiabao and Zhou Xiaochuan, head of the People’s Bank of China. Zhou is firmly in the camp of the “reform and open up” grouping. He told U.S. Treasury Secretary Timothy Geithner during recent negotiations in Beijing that China should surrender to long-standing U.S. pressure to raise the value of its currency so that U.S. capitalist exporters could more easily penetrate the Chinese market and Chinese goods would be more expensive to sell abroad.

The May 3 New York Times quoted Zhou as saying: “The two sides have some views in common. They both think that exchange rates should be determined by a market system.”

The article continued, “The official also praised recent Chinese policy changes to allow more foreign investment and liberalize markets, an outgrowth of closer talks.”

Another key figure in making policy is Li Keqiang, who is scheduled to replace Wen Jiabao as premier.

The German newspaper Deutsche Welt explained in its online edition: “Chinese Vice Premier Li Keqiang commissioned the study ‘China 2030’ during a visit by [World Bank head] Robert Zoellick in 2010. Li oversees economic policies and appears to be the most promising candidate to run for office of prime minister in 2013. The main focus of the World Bank study is the state-owned enterprises, which have control over the energy sector, raw materials, telecommunications and the infrastructure. They dominate the public sector.

“The World Bank suggests implementing oversight of the state-owned companies by independent, outside managers will help. The managers will ensure the companies are run in accordance with the rules of the market economy and thus become more politically independent. Redundant units should be sold off, which will greatly benefit private competition. In addition, Zoellick suggests China reduce restrictions and obstacles for private companies.” (“The World Bank warns China of an upcoming crisis,” www.dw.de, Feb. 29)

The fact that the highest “reform” officials in charge of the Chinese economy have temporarily won out in the struggle against the left forces within the party establishment — who want to limit the market, emphasize state investment and prioritize the fight against growing inequality — is a dangerous conjuncture of circumstances. This is the very moment when such an anti-capitalist approach is urgently needed.

Socialist state intervention the answer

With the Chinese economy in an across-the-board slowdown in investment, retail sales, exports, imports, electrical energy output, construction and bank lending, and having to cope with a housing bubble, manipulating the capitalist market is a negative prescription for the economy and potentially spells hardship for the workers and peasants. Compared to the progressive, interventionist manner in which the Chinese government reacted to the 2008-2009 crisis — with massive planning, vigorous intervention by the state-owned enterprises and raising the income of the lowest-income people — using bourgeois monetary methods to combat the slowdown would be a drastic step backwards.

Stimulating the economy with cheap credit for the capitalists or trying to promote recovery through tax breaks would only make a bad situation worse. Planned, socially useful investment that deals with the economic downturn by ensuring the well-being of the masses and helping national development is the best antidote to the downturn at the moment.

If anything, the developing downturn only vindicates the left forces, represented by Bo, who want to limit the market, emphasize state intervention and fight growing economic inequality.

Of course, what is needed in the long run is a full-scale return to the socialist road and the complete abandonment of the capitalist road disguised under the false label of “market socialism.” The capitalist market and socialist society are totally at odds and cannot coexist indefinitely.

Hopefully, the left can take advantage of the present slowdown to regroup and point to the repetitive crises that are endemic to capitalism, both international and domestic. What is needed is to go on the political offensive against the right, begin to chart a course away from dependence on the capitalist market and reinstate socialist norms, including the empowerment of the workers and peasants.

Goldstein is the author of “Low-Wage Capitalism” and “Capitalism at a Dead End.” More information on both books is available at www.lowwagecapitalism.com. The author can be reached at [email protected]

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